Transcript of "Raising Capital on ASSOB"

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Equity raising alternatives <ul><li>Locate a strategic business partner / investor </li></ul><ul><ul><li>Time consuming and high risk process </li></ul></ul><ul><ul><li>Bargaining power on equity pricing strongly in favour of investor </li></ul></ul><ul><ul><li>‘ Cap in hand’ approach to investors </li></ul></ul><ul><ul><li>No certainty in the process </li></ul></ul><ul><li>Raise capital through a public offer via a prospectus or Offer Information Statement (OIS) </li></ul><ul><ul><li>Expensive: $100K to $200K up front to prepare a prospectus </li></ul></ul><ul><ul><li>Slow: At least six months audited accounts required for the preparation of a disclosure document </li></ul></ul><ul><ul><li>Time consuming: Six months lead time in setting the business up for a disclosure document </li></ul></ul><ul><li>Raise up to $5 million in a small scale offer through the Australian Small Scale Offering Board (ASSOB) </li></ul><ul><ul><li>Minimal up front costs </li></ul></ul><ul><ul><li>Quick access to capital raised (77% of all ASSOB matters raise capital within three months) </li></ul></ul><ul><ul><li>Access to distribution network: 7,500 professional investors on ASSOB data base will receive notification of the opportunity (as well as the Tauro Capital and Bourse Communications network of 2,500+) </li></ul></ul><ul><ul><li>Ability to raise additional rounds of capital every 12 months </li></ul></ul><ul><ul><li>Sets the business up for a subsequent capital raising via a disclosure document by </li></ul></ul><ul><ul><li> establishing audit and governance disciplines </li></ul></ul>

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Equity raising – compliance regime <ul><ul><li>The ASSOB capital raising process is sanctioned in Corporations Act 2001under its own ASIC class order (C O02/273) </li></ul></ul><ul><li>ASSOB capital raisings are not made under disclosure. They are personal offers made to no more than 20 investors for amounts not exceeding $5 million (ASIC have granted ASSOB an extension to the $2 million limit placed on the general public). </li></ul><ul><li>The 20 investor limit does not apply to overseas or sophisticated investors </li></ul><ul><li>Because no disclosure document is required, the process is relatively inexpensive and quick to execute. </li></ul><ul><li>Companies executing an ASSOB capital raising are required to adopt high standards of corporate governance and reporting: </li></ul><ul><ul><li>Issuers must be unlisted public companies that prepare annual audited accounts </li></ul></ul><ul><ul><li>Issuers must have a minimum of three company directors with the majority non-executive directors </li></ul></ul><ul><ul><li>Issuers must present investors with a proper business plan and report regularly on the achievement of performance milestones </li></ul></ul><ul><ul><li>Directors and senior managers are subject to bankruptcy and police checks to ensure only quality professionals are entrusted with shareholders’ funds </li></ul></ul><ul><li>A personal offer excludes any offer made to the public via an advertisement </li></ul><ul><li>The compliant way to market an ASSOB offer involves: </li></ul><ul><ul><li>Informing people the issuer is undertaking an ASSOB capital raising. This can be done through the media, at a public event </li></ul></ul><ul><ul><li>Directing interested parties to the ASSOB issuer page. This can be done via a link from the issuer’s website or through the ASSOB member responsible for project managing the process (Tauro) </li></ul></ul><ul><ul><li>Running investor meetings with interested parties. Attendees execute a qualifying statement at the beginning of the meeting </li></ul></ul><ul><ul><li>This approach is fully sanctioned by ASIC </li></ul></ul>

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Raising capital on the Australian Small Scale Offerings Board <ul><li>Who is the Australian Small Offering Board? </li></ul><ul><ul><li>ASSOB is an exclusive membership based platform for growing businesses to raise capital from professional investors </li></ul></ul><ul><ul><li>Companies can raise up to $5 million per annum on ASSOB without incurring the time and financial cost of preparing a disclosure document </li></ul></ul><ul><ul><li>Investors and founders can sell their shares on a secondary market run by ASSOB </li></ul></ul><ul><ul><li>Matches high quality investment opportunities with high net worth investors </li></ul></ul><ul><ul><li>Platform has proved to be extremely successful in raising capital since its inception in 1997 </li></ul></ul><ul><ul><li>Companies can only can only access the platform through a accredited ASSOB member </li></ul></ul><ul><ul><li>The ASSOB capital raising process is sanctioned in Corporations Act 2001 under its own ASIC class order (C O02/273) </li></ul></ul>

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Current ASSOB clients – a snapshot The graphic below is a screen grab from ASSOB’s primary issue page, which can be seen by all ASSOB members and new interested parties directed to the ASSOB website ASSOB matters are listed on the web, all 7,500 investors on the database can track the status of each capital raising... Competitive tension is generated by conducting the raising in ‘rounds’ at different prices. Shares are issued at a discount in earlier rounds giving early participants a better deal creating an incentive for investors to get on board early The red squares indicate that a parcel of shares has been purchased by an ASSOB investor. Each investment round has it’s own row. Interested investors can move to a dedicated issuer page by clicking here. From that page they can download the offer document.

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Company profile Investors follow a link from the primary issue page (as shown on the previous slide) and are then taken to a corporate profile page containing a summary of the opportunity, a download icon for the offer document and a short movie introducing the opportunity ASSOB have found from past experience that short mpeg movies that profile the business and the directors result in higher investor uptake of the opportunity The investment fundamentals (exit strategy, estimated future earnings, available investment parcels) are highlighted to giver educated, professional investors access to fundamentals driving their investment decision Investor enquiries are entered here and sent directly to the ASSOB member running the process

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The ASSOB Secondary Market All ASSOB investors (as well as the original founding shareholders) can offer their shares for sale on a secondary market. This provides investors with an early exit mechanism if they do not wish to wait for a major liquidity event. The ability to trade in and out of shares on a secondary market is extremely attractive to investors in early stage and growing enterprises. Investors in unlisted businesses rarely get this opportunity but the ASSOB platform makes it possible. It is also possible for founding shareholders to release equity through this mechanism (although not during a capital raising) The status of each secondary offer is listed here. It’s interesting to see that nearly all secondary offers listed on the Board have been sold! The ASSOB member (in this case Tauro Capital) is responsible for managing all secondary market transactions.

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Outline of proposed process <ul><li>Prepare for the capital raising process </li></ul><ul><ul><li>Prepare ASSOB compliant information memorandum </li></ul></ul><ul><ul><li>Prepare triple bottom line financial model and forecasts to be used in IM </li></ul></ul><ul><ul><li>Prepare capital raising structure and equity raising plan satisfactory to the client and ASSOB </li></ul></ul><ul><ul><li>Develop short form business plan supporting financial model </li></ul></ul><ul><ul><li>Set up appropriate audit and corporate governance arrangements in the business to ensure the business is compliant with ASIC and ASSOB capital raising requirements </li></ul></ul><ul><ul><li>Map out the capital raising by a staged process aimed at creating competitive tension with investors in a summary document – the Strategic Growth Plan (SGP) </li></ul></ul><ul><li>Execute the capital raising </li></ul><ul><ul><li>Submit application to raise equity capital to ASSOB (capital raising structure and strategic growth plan included) </li></ul></ul><ul><ul><li>ASSOB approve strategic growth plan and information memorandum </li></ul></ul><ul><ul><li>Pre-marketing of the opportunity to sophisticated investors </li></ul></ul><ul><ul><li>Matter goes live on ASSOB primary issue board </li></ul></ul><ul><ul><li>All in bound calls from interested parties handled by Tauro Capital </li></ul></ul><ul><ul><li>Applications for share subscriptions received by Tauro Capital </li></ul></ul><ul><ul><li>ASSOB issue share certificates and release funds to the client </li></ul></ul><ul><ul><li>Periodic review of progress of capital raising with the client every two weeks </li></ul></ul><ul><ul><li>Remain on ASSOB for future capital raisings or move to disclosure document </li></ul></ul>

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Why use ASSOB as a platform for the restructure? <ul><li>Maximise chances of success – proven track record </li></ul><ul><ul><li>In 2007, 77% of all opportunities listed on ASSOB are successfully raised capital within 3 months </li></ul></ul><ul><li>Maximise client’s interests </li></ul><ul><ul><li>Corporate valuation can be linked to future earnings streams and exit value </li></ul></ul><ul><ul><li>Not a ‘cap in hand’ approach – investors compete with each other to receive a better deal by participating earlier in the process </li></ul></ul><ul><li>Maintain control over the business </li></ul><ul><ul><li>Unlikely that any individual investor would have a significant shareholding </li></ul></ul><ul><ul><li>ASSOB investors tend to be passive rather than active </li></ul></ul><ul><li>Flexibility </li></ul><ul><ul><li>Founders and investors can offer their shares for sale on secondary ASSOB market </li></ul></ul><ul><ul><li>ASSOB platform provides ability to offer subsequent issues to finance capital purchases or acquisitions </li></ul></ul><ul><li>Speed </li></ul><ul><ul><li>The raising could be completed in as little as 3 to 5 months from commencement of this engagement </li></ul></ul>